TSEM8255 - Trust management expenses: accumulation/discretionary trusts: grossing up and order of set-off example
An accumulation/discretionary trust has income as follows:
Income | Amount | Net |
---|---|---|
Dividends | £900 | net |
Bank interest | £8,000 | net (£2,000 tax deducted at source) |
It has spent | £1,200 | on allowable TMEs. |
TMEs are set first against dividend income, and any excess against the savings income.
Dividends | Amount | Bank interest | Amount |
---|---|---|---|
Dividends gross | £1,000 | bank interest gross | £10,000 |
less TMEs grossed\nup at dividend rate | - | - | - |
(900 × 100) ÷ 90 = | £1,000 | - | - |
excess TMEs | (300) | excess TMEs grossed up at basic rate (300 × 100) ÷ 80 = | £375 |
- | - | - | £9,625 |
There is nothing chargeable at the dividend trust rate, as this income is covered by the grossed-up TMEs. The bank interest £10,000 is taxable:
Interest | tax rates | Total |
---|---|---|
£375 | at basic rate due to TMEs | £75 |
£1,000 | at basic rate due to standard rate band | £200 |
£8,625 | at trust rate | £4,312.50 |
- | Total | £4,587.50 |
As this income has already suffered tax at the basic rate (20%) the further tax to pay is £2,587.50.